THE SETUP:

Your best friendDavejust celebrated his24th birthday and wants to start saving for his anticipated retirement.Daveplans to retire in 36years and believes that he will have 25good years of retirement and believes that if he can withdraw $125,000 at the end of each year, he can enjoy his retirement.Assumethat a reasonable rate of interest forDavefor all scenarios presented below is6.5% per year.

This is an annual rate, review each individual question for more specifics on compounding periods per year.

BecauseDaveis planning ahead, the first withdrawal will not take place until one year after he retires.He wants to make equal annual deposits into his account for his retirement fund.

For each question, add blank lines as needed to provide your solution.

A.If he starts making these deposits in one year and makes his last deposit on the day he retires, what amount must he deposit annually to be able to make the desired withdrawals at retirement?

A1)First: Amount needed at retirement(3 pts):

A2) The amountDavemust save eachyear(beginning at the end of the first year) to fund his retirement is(3 pts):

A3)If Dave decides to makemonthlydeposits to reach his same retirement goal, how much must Dave start depositing one month from today?(3 pts)?

B.IfDavedecides instead to take exotic vacations each year for the next5years, and delay putting aside funds for that time, (1st deposit at the end of5years from now, leaving only31years to grow his retirement nest egg), what amount must he deposit annually to be able to make the desired withdrawals at retirement(4 pts)?

C.We are now back toDavestarting his retirement investments one year from now.Suppose your friend has just inherited a large sum of money. Rather than making equal annual paymentsfor the entire investment period ,he has decided to makeone lump sum deposittoday to cover his retirement needs. What amount does he have to deposit today?(3 pts)

D.We are now back toDavestarting his retirement investments one year from now (36years to retirement). SupposeDave's employer will contribute $2,500 to the account each year as part of the company's profit sharing plan. In addition, assume thatDavehas a trust fund that will pay out $50,000 to him when he is40(16years from now). What amount must he deposit annually under these assumptions to be able to make the desired withdrawals at retirement?

To find the amount of the annual deposit now, it is easier to break down the components of the problem. Doing so for each of the following to find your friend's annual deposit, we get:

D1) Value of employer's contribution at retirement(1 pt):

D2) Value of trust fund at retirement(1 pt):

D3) Remaining amount thatDaveneeds at retirement(1 pt):

D4) (Final answer) Amount to save each year under these assumptions(1):

ESSAY SECTION, CONCEPTUAL

There are obvious simplifications in this problem, making it unreasonable in "real life". Begin by discussing how economic conditions, chosen investment vehicles (FDIC insured investments, mutual funds, stock markets, etc.), diversification (e.g., invest all in Tesla or go with index funds), rates of return, and inflation will affect retirement planning. What are some ways that those saving for retirement canhelp address the key issues you have discussed? Be sure to address both parts of this question.

Read the Rubric for essay section (below). The essay section is worth 10 out of the assignment's 30 point (max) total.

Rubric for the essay section:

Answer providesenoughdepth to cover the topic (250 words minimum).

Response is well written and free from writing errors (grammar, punctuation, sentence structure, spelling, etc.)

APA citation for sources provided (with a minimum of 1 reference, but no more than 5 references). The sources are of high quality (books, journal articles, reputable business magazines, professional association publications, government websites etc.).INVESTOPEDIA (OR WIKIPEDIA) is not considered a proper reference.

Begin essay below:

Just start typing over this text